Correlation Between Brown Advisory and Franklin Lifesmart

Can any of the company-specific risk be diversified away by investing in both Brown Advisory and Franklin Lifesmart at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Brown Advisory and Franklin Lifesmart into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Brown Advisory and Franklin Lifesmart Retirement, you can compare the effects of market volatilities on Brown Advisory and Franklin Lifesmart and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Brown Advisory with a short position of Franklin Lifesmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brown Advisory and Franklin Lifesmart.

Diversification Opportunities for Brown Advisory and Franklin Lifesmart

0.38

Correlation Coefficient

Brown Advisory  Franklin Lifesmart

Weak diversification

The 3 months correlation between Brown and Franklin is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Brown Advisory and Franklin Lifesmart Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Lifesmart and Brown Advisory is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Brown Advisory are associated (or correlated) with Franklin Lifesmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Lifesmart has no effect on the direction of Brown Advisory i.e., Brown Advisory and Franklin Lifesmart go up and down completely randomly.

Pair Corralation between Brown Advisory and Franklin Lifesmart

Assuming the 90 days horizon Brown Advisory is expected to generate 2.16 times more return on investment than Franklin Lifesmart. However, Brown Advisory is 2.16 times more volatile than Franklin Lifesmart Retirement. It trades about -0.08 of its potential returns per unit of risk. Franklin Lifesmart Retirement is currently generating about -0.2 per unit of risk. If you would invest  1,472  in Brown Advisory on December 11, 2024 and sell it today you would lose (21.00) from holding Brown Advisory or give up 1.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Brown Advisory   vs.  Franklin Lifesmart Retirement

Brown Advisory

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brown Advisory has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Franklin Lifesmart

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin Lifesmart Retirement has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Franklin Lifesmart is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Brown Advisory and Franklin Lifesmart

The main advantage of trading using opposite Brown Advisory and Franklin Lifesmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brown Advisory position performs unexpectedly, Franklin Lifesmart can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Franklin Lifesmart will offset losses from the drop in Franklin Lifesmart's long position.

The idea behind Brown Advisory and Franklin Lifesmart Retirement pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.